I’m sure you’ve heard in the news about “GDP.” Most likely you’ve heard about increases or decreases in GDP over time. What exactly is in GDP? We’ll talk about that in this post with a focus on the largest aspect of GDP – consumption.
So, to start, GDP is short for “Gross Domestic Product” and is a sum of all of the things produced in an area – typically a country. It is used as a measure for how the economy is doing. If the country is producing more than it was before, then it is a sign that the economy is growing.
To calculate GDP, we add up a few things (and subtract one thing).
GDP = Consumption + Investment + Government Spending + Exports – Imports
Consumption is the number of final goods people consume. More on this below.
Investment is a measure of how much businesses are spending on their company (Think: buildings & inventory. Do not think stock market investments.)
Government Spending is the amount of money spent by the government (think: roads)
Exports are the amount of goods produced in the U.S. that are then sent abroad. Some examples of goods we export are: corn, nuts, computers, vehicles, … (Worlds Top Exports Link)
Imports are the amount of goods produced in OTHER countries that are brought into the U.S. We have to subtract them because they will otherwise show up in Consumption, Investment, and Government Spending and thus overestimate the economy’s growth. (More on this in a future post.)
Consumption is the dominant portion of U.S. GDP. It is a combination of goods purchased in the U.S. and services purchased in the U.S. It makes up about two-thirds of GDP. In 2019, US GDP was $21,433 billion with consumption around $14 billion (link: https://www.bea.gov/resources/learning-center/what-to-know-gdp, Table 1.1.5. Gross Domestic Product [Billions of dollars] Seasonally adjusted at annual rates).
Let’s give a concrete example of stuff that goes into Consumption. I made some cornbread casserole (sometimes called Spoon Bread) to go along with some chili. Here are the ingredients:
1 stick Butter (produced in the U.S) ~$1
Jiffy’s Cornbread Mix (produced in the U.S.) ~ $1
1 Can cream-style corn (produced in the U.S.) $1.50
1 cup Sour Cream (produced in the U.S.) ~$2
2 Eggs (grown in the U.S.) ~$0.50
Plus, to make this casserole I needed a cast iron skillet which is around $30.
As I noted above, each of these ingredients was produced in the U.S., AND I bought them here (in other words, I consumed them in the U.S.), so my purchases on ingredients contributed $6 to the country’s GDP. My skillet purchase added another $30 to GDP.
Now, we have to be careful. I’m just a home cook, so I made this cornbread and ate it myself (and my family helped). If I had a restaurant and was selling the cornbread, then we would not calculate all of the ingredients that went in. We would only calculate how much I sold it for. Let’s say 8 slices of cornbread at two dollars a slice = $16. So, the cornbread I made and sold would add $16 to GDP. This is what we mean by FINAL goods. We don’t want to count the ingredients that go in if it is going to be sold as something else later. As a restaurant owner I’m adding value beyond just the ingredients, and we want to include that in there.
Also, there are Durable and Non-Durable goods. Non-durable goods are ones that do not last long. The ingredients I purchased would fall under non-durable goods. Food certainly does not last forever. Durable goods are ones that last longer. My cast iron skillet would most likely be in that category because it should last thousands of years (exaggeration… maybe). The oven I used to bake the cornbread in would definitely be in the durable goods category.
Finally, within consumption there are Goods consumed and Services consumed. The ingredients and skillet are both goods. If I bought the food in a restaurant, that is included in services. Other major services are housing and utilities, healthcare, transportation, recreation, financial services, and insurance. (BEA link)
There is a lot more to GDP which we’ll get to in future lessons. We need to talk about GDP per capita (or per person). Which means we take total GDP and divide it by the number of people in the country. That is an important way to compare output across countries. We also need to talk about inflation – prices rising over time. Just because the GDP number goes up, does not mean that production is going up. It could just be that prices are rising. We’ll also talk about Exports, Imports, and hopefully Investment and Government Spending.
For now, I think we’ve covered enough. But, as a review:
Final Goods: The last stop in the purchase. If I’m baking for myself: ingredients. If I’m selling the food: NOT the ingredients but the final casserole.
Non-durable goods: things that do not last long. Ex: ingredients for spoon bread.
Durable goods: things that last a long time. Ex: oven
Goods: Things you purchase and consume. Ex: ingredients for spoon bread
Services: Non-tangible goods. My teaching is an example of a service.
Liz’s Spoon Bread
Liz is one of my wonderful roommates from college. I can’t tell you the first time I had this spoon bread, but it forever changed my view of what cornbread could be. Prior to that time, I thought cornbread was dry and boring. This is the opposite of that. This recipe is actually from her high school friend’s mom, Mrs. Haley. So, thanks Liz and Mrs. Haley for this life changing recipe!
1 stick butter 2 eggs 1 can (14 to 15 oz.) creamed corn 1 cup sour cream 1 box corn bread mix (I used Jiffy’s)
· Melt butter and stir in corn bread mix.
· Add the remaining ingredients
Bake at 350 for 40-45 minutes.
When you make the above cornbread, I also recommend you make this chili. It’s different than most chilis I’ve had and is absolutely delicious. The recipe is derived from this American Spoon recipe. https://www.spoon.com/cherry-peach-pumpkin-chili.html It is VERY easy.
Approximately 2 Tbsp. olive oil
1 clove garlic
1 to 2 pounds ground turkey (depending on how much you want to make)
2 15 oz. cans cannellini beans, drained
1 28 oz can or 2 14 oz. cans stewed tomatoes
1 jar of fruit salsa. The original recipe calls for cherry peach salsa. I often use a mango, pineapple, or mango/pineapple salsa, depending on what I can find.
1 can of pumpkin
4 oz. can chopped green chilis (or 4 oz. can of diced jalepenos – I did this by accident one time and it was good!)
1 Tbsp. cumin
1 Tbsp. chili powder
½ tsp. cinnamon
½ tsp. cocoa powder (yes, you read that correctly)
Heat the olive oil over medium in a large pot while you dice your onions. Throw into the pot and let cook for about 3 to 5 minutes. Dice your garlic and add to your pot. Then add in the ground turkey. Continue cooking over medium and constantly stirring until your turkey is cooked.
Throw in the rest of your ingredients. Stir. Let cook over low heat for at least 30 minutes.
Serve immediately or store in refrigerator until ready to reheat and eat!